Breakout

How to Invest in Water: “The Great Untold Story”

Jeff Macke
Breakout

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Like so many things, Americans take water for granted in a way the rest of the world doesn't. This despite the fact that our agricultural base requires a constant shuttling of water through the better part of California and New York City using rapidly deteriorating, decades-old infrastructure. Surely there has to be a way to profit from water other than bottling it and selling it for $5.

"It's the great untold story," says Joe Quinlan, chief investment strategist at U.S. Trust. He believes water is priced incorrectly (read: free to Americans), leading to a lack of both investment dollars and incentives for the subsidies doled out so freely to industries of lesser importance.

Regardless of how we feel about it in the U.S., "in China and India they are building out the water infrastructure." Without these improvements these countries simply can't continue to grow. It may seem like an easy problem to solve given that 70% of the earth is submerged, but Quinlan says that's not the case. According to him only 1% of the world's water supply is potable with 2% of the rest frozen, and the remainder in the seas.

Are you convinced that creating a greater supply of drinkable water is a growth industry yet? Good, because Quinlan has two ETFs to consider.

He likes PowerShares Global Water Portfolio (PIO) and their Water Resources Portfolio (PHO). As the names suggest, the former is relatively focused on international companies and the latter more domestic, though Quinlan concedes there's some leakage between the books.

Of course the problem with untold stories, large and small, is that nobody talks about them. With the U.S. blase' about our looming water needs and other nations seemingly content to work on the problem in-house, what's the catalyst to drive these portfolios higher?

Two things, says Quinlan. The first is that the companies make attractive M&A candidates for larger companies looking to expand their portfolios. The second is the inevitability of demand.

"One day California doesn't have enough water to drive it's agriculture sector" he says. "Or China announces, 'we're going to grow at 4% growth instead of 8% growth because we don't have enough water for our agriculture industry or residential use.'"

Such announcements would be watershed moments, causing a flood of new money to gush into the space. Are you buying into the water investment thesis? Let us know in the comment section below.

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